Reserve Bank signals interest rates to remain low

THE Reserve Bank has indicated that the official cash rate is likely to remain low, but appears to have ruled out a cut before next month's federal election.

AAP and staff writers

AAPAugust 20, 20133:55pm

RBA Governor Glenn Stevens. Photo Philip NorrishSource:News Limited

THE Reserve Bank has indicated that the official cash rate is likely to remain low.

The minutes of the RBA's August 6 board meeting, at which it cut the cash rate to 2.5 per cent, contained unfamiliar language from the board about the possible timing of future rate decisions.

"Members agreed that the bank should neither close off the possibility of reducing rates further, nor signal an imminent intention to reduce rates," the RBA minutes said.

The minutes effectively rule out a pre-election rate cut when the board next meets on September 3, indicating its view is more long term.

"The board would continue to examine the data over the months ahead to judge whether policy was appropriately configured.

The minutes also said the Australian dollar, despite falling to three years lows, remained at historically high levels, supporting the case for a cut in August.

"It was possible the exchange rate would decline further over time, which would assist in rebalancing growth in the economy," the minutes said.

ANZ foreign exchange strategist Andrew Salter said the comments caused a small amount of volatility for the Aussie dollar.

"The minutes seem to have suggested that the RBA is thinking a little more deeply about its communication and how it communicates the outlook for policy," Mr Salter said.

"Participants are unsure how to read this."

Mr Salter said the Australian dollar had already fallen by almost one US cent overnight, after being sold against the euro following comments from the German central bank that the European Central Bank could hike rates if inflation pressures increased.

Meanwhile, Australian bond futures prices were unchanged from 1630 AEST on Monday.

At 1200 AEST, the September 10-year bond futures contract was at 95.970 (4.030 per cent).

The September three-year bond futures contract was at 97.170 (2.830 per cent).